1. Field of the Invention
The system and method of the present application relate generally to business forecasting and analysis, and more particularly to determining an optimal forecasting hierarchy.
2. Description of Related Art
In business and economics, there are often applications requiring forecasts of many related time series organized in hierarchical structures based on attributes of classifications. Existing approaches to hierarchical forecasting start with a given hierarchy then follow by evaluating the performance of reconciling forecasting methods. Literature on reconciling forecasting methods can be classified into three groups: (1) “top-down”, (2) “bottom-up”, (3) a combination of “top-down” and “bottom-up.” These conventional forecasting methods imply a key assumption that the hierarchical structure had already been optimally determined. However, the legitimacy of this assumption is questionable. In practice, many selected hierarchical structures are determined in an Ad Hoc manner. Further, for a hierarchical system with median dimension of classification, it will be difficult to conduct exhaustive Ad Hoc analysis to determine an optimal hierarch. Therefore, an analytical approach to find an optimal forecasting hierarch is appealing.